HIDDEN PERSUADERS, by Tony Thompson, Time Out, June 22 - 29 1994
(Amway says it can make you rich beyond your wildest dreams with its multi-level marketing system; critics say it only makes money for a very few at the top, and its techniques are worryingly cult-like. Tony Thompson asks if vulnerable Londoners are being misled by this and other groups promising to transform your life.) It was two days after he had been seen on national television, helping a young girl break away from a religious sect, that the call came through to Graham Baldwin's office. The former university chaplin who now runs Catalyst, a counselling and therapy service for those affected by cults, listened carefully as the man explained how the group he had joined a year earlier was slowly taking over his life. There were the huge monthly meetings at venues like Wembley Conference Centre where he and thousands of other followers were worked into a passionate frenzy then told to go out and find as many new recruits as possible; the powerful doctrine that frowned on television, newspapers and other 'negative' influences; there was the strict dress code and the advice on how to bring up children and relate to loved ones; there was the fear that to quit would mean giving up hope of a happy future. However, having seen the television show featuring Baldwin, the man now alleged that he was being subjected to mind control techniques and being manipulated by those above him. He wanted advice on making a possible break. Baldwin asked which cult the man was in. "It's not a cult. It's not a religion. It's something called Amway". At first glance, the Amway Corporation, one of the largest direct-sales companies in the world, couldn't be less cult-like. Founded by two school-friends in a basement in Michigan in the US in 1959 with a single soap product, the company has grown into a $4.5 billion-a-year manufacturing and sales network employing some 11,000 workers in more than 50 countries across the world. Its founders, Jay Van Andel and Richard DeVos, are said to be worth at least $3bn each. Amway currently manufactures thousands of products from cosmetics and cookware to household cleaners and vitamins. None of these is available in the shops - instead they are sold direct to the public, person-to-person, by a multi-level marketing network of two million independent distributors who earn a commission on everything they sell. Amway came to the UK in 1973 and now has 73,000 British distributors, who sell mostly to friends and family in their spare time, on a self-employed basis. The company is highly respected in business circles - at a recent motivational seminar for distributors, former Chancellor Norman Lamont delivered a keynote speech. In the last financial year the British operation turned over 50 million, an increase of 56 per cent on the previous year. Projected turnover for 1993-94 is 70 million. This phenomenal growth is not solely due to the company's products but more down to the fact that it offers virtually anyone and everyone a deal which many, especially those bitten by recession, find hard to resist. Join us, say Amway's distributors, and within two to five years you could be rich beyond your wildest dreams and spend your days 'walking the beaches of the world'. A recruitment video, presented by Michael Aspel, features couples who live in enormous detached houses and have luxury cars, talking about how much freedom and independence the Amway opportunity has given them. The narrative tells how the company is built on 'ethics and integrity' and how it has helped 'thousands improve the quality of their lives'. However, a major investigation by Time Out has uncovered evidence that: * Far from boosting their incomes, the vast majority of those who become Amway distributors, particularly those in 'the system', are likely to end up losing money. * Support groups headed by senior distributors within the Amway organization are adopting cult-style tactics to recruit and motivate those below them. Help groups such as Catalyst, teh Cult Information Centre and Family Action Information and Rescue (FAIR) are increasingly receiving calls from worried Amway distributors and their families, concerned about the techniques being used to keep them in the organization. * The majority of the wealth of the tiny number of top-ranked distributors in this country comes not just from the sale of Amway products but from selling motivational materials and organizing seminars and rallies for the people below them. The basic principle of the multi-level marketing which Amway uses is that it is far easier to make a living by taking 1 per cent of the sales efforts of 100 people than it is to rely on 100 per cent of your own efforts. Thus Amway distributors only spend a fraction of their time dealing with their customers - most of whom are friends and family. Instead, the majority of their time is spent trying to recruit others into the network. The basic scenario goes something like this: you recruit or 'sponsor' six friends into the organization. They in turn each sponsor three friends who in turn each sponsor two more friends. You then have a 'downline' of 60 people. If each one sells say a mere 140 worth of products each month, you earn a commission of 1000. The more people in your downline, the bigger your cut. Furthermore, as the sales volume of your group grows, you can earn bonuses on top of your commission. Each new bonus level is given a title. Those on the bottom level of 'leadership' are known as 'direct' distributors while those above them - the 'upline' - are known in ascending order as Pearls, Emeralds, and Diamonds. Typically these 'jewels' have thousands in their downlines and the most successful are said to be millionaires. Finding sponsors is known as 'showing the plan' and the keenest recruits will devote four or five evenings a week to building their networks. As rejection is common, recruits are urged to join the 'system' which helps to boost confidence, hone people skills and top up motivation. Those who are fed a near constant diet of positive mental attitude books, inspiring motivational audio tapes and invited along to regular training meetings and seminars all of which they are told will make their business grow faster and bring financial freedom all the nearer. But in reality, few distributors go on to achieve their goals. The drop-out rate is around 50 per cent and even for those who remain, the dreams go unfulfilled. Colin, a former Amway direct distributor from Hackney, decided to quit after becoming disillusioned. He has since received help from the Cult Information Centre to help him get over the experience. "When you go out showing the plan, it's less asbout explaining the business and more about finding out what the person really wants out of life, then showing how Amway can help them achieve it. You tell people this can help their dreams come true. You explain that they are caught in a rut. That they will work 40 years and once they hit 65, they will be either be broke, dead or dead broke. "If they are not money-minded, you put the emphasis on how much the money can help others - "you can give to charities and make a real difference; you can pay your parents back for all the work they put into bringing you up." Otherwise you just play on their greed. "You can have that big house in the country, the BMW, you can buy your daughter that pony for Christmas, you can take that two-week holiday in the Far East"." Colin and his wife would go out showing the plan four or five nights a week, often driving hundreds of miles to see potential prospects. Although their network and sales volume grew, they still found they were spending far more on petrol, telephone calls and other expenses that they were making. Then there was the cost of the 'system' itself. "We'd get a tape each week and a book each month. Then we'd be expected to attend weekly training meetings and monthly rallies and seminars. Although it was only a few pounds at a time, it really did start to add up." Although he was losing money, Colin stuck with the system, mainly because of the encouragement of his tremendously wealthy upline Diamond. After two-and-a-half years, Colin eventually reached the direct level and found that, after expenses, he and his wife were making around 400 a month for a job that seemed to be taking up virtually all their spare time. "My Diamond kept saying that one day I'd see how the business worked. Once I did, I realised I couldn't stay in it any more." Colin's Diamond explained that his real wealth came from selling books and tapes and from organizing the meetings. "I'd always been told to ensure my entire downline were completely plugged into the system and that they went to every meeting. You're told that books and tapes are the tools you need to build a successful business but in fact we were just lying to people to line the pockets of the jewels above us. I didn't feel right about joining in with that so I left". One problem is that the 'system' itself is nothing to do with Amway. It is run by top-level jewel distributors who, once they have enough people in their downline, branch out. They become known as 'black hats' and all the wealth that comes out of the books and tapes goes straight to them, not the corporation. In 1985, Don Gregory, a former speechwriter for Amway co-founder Jay Van Andel, told Forbes magazine: "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by egtting enough people underneath to do the same". In the same issue a major Amway black hat, Dexter Yeager, whose downline includes the majority of Britain's distributors, admits that two-thirds of his income came from tapes and books. The individual cost of training materials may be low - a mere 3.40 for a tape for example. But if the tape itself costs only 1 to produce and you have 7,000 in your downline as Colin's Diamond does, and they buy one a week, then that's a clear profit of 16,800 per week. 873,600 a year. The Yeager downline is believed to be in excess of 150,000. In 1985, Amway, Yeager and another black hat, Bill Britt, were taken to court by two former distributors who alleged they had been brainwashed into buying books and tapes. The case was settled out of court in 1988 with no admission of liability from the corporation. In order to benefit from the book, tape and seminar profits - the hidden business within the Amway business - you first have to reach at least the direct level and above, something that only a tiny proportion of all those who join Amway actually achieve. The company has admitted to Time Out that the number of directs and above in Britain is between 1 and 2 per cent of the total number of distributors. At the most, this amounts to between 700 and 1,400 people out of the 73,000 currently signed to Amway. According to Amway's hypothetical models of how a distributor's network would grow, a direct distributor would earn a minimum of 1000 per month. However, even reaching the direct level is no guarantee of financial freedom. In 1982, the Amway Corporation was taken to court by the State of Wisconsin on a charge of deceptive business practice. Assistant Attorney Bruce Craig had examined the tax records ofg the 20,000 Amway distributors in the state to see how many were actually making the money they joined for. He too found the number of direct distributors was around 1 per cent but far more startling was the revelation that within that 1 per cent, the average direct distributor was, after the deduction of business expenses, making a net income of _minus_ $918 per year, despite a personal Amway turnover of $14,000 per year. As a result of the subsequent court case, Amway is now obliged to disclose details of average gross incomes - though only in America. Internal Amway documents obtained by Time Out show the average distributor income last year was just $65 per month gross, a figure that has actually dropped from an average of $76 three years ago. Time Out put its questions about the chances of making money, the suggestion of cult-style tactics and the wealth being generated by book and tape sales to Amway which wrote back at length with descriptions of its philosophies. It did, however, admit that it intends to begin monitoring all books and tapes issued by independent distributors in the near future. It denied being cult-like (though Time Out's question refers not to the corporation but to the techniques employed by the black hat groups), stating that because the company rewards individual achievement, its concept is the opposite of a cult. As is the case with virtually all multi-level marketing companies, at least half of all Amway distributors will quit in any given year but they are more than replaced by eager new recruits, keen to make their dreams come true. But for those who fail to strike it rich, there is often a feeling of disillusionment. "They are constantly told that anyone can succeed with Amway, if they do not, they can only feel downtrodden", says a spokeswoman at FAIR. "They don't realise they have been in a group which is cultic, they blame themselves for failing". And for those distributors who remain loyal to the company whether they make money or not, one of the most popular in-jokes must ring painfully true: "Hear the one about the woman who was married to an Amway distributor for 15 years but was still a virgin? All he did was sit at the end of the bed and talk about how great it was going to be".